WE HELP NEW YORK THRIVE

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1 Alternative Methods for Financing & Delivering Student Housing June 1, 2017 WE HELP NEW YORK THRIVE SUNY BROCKPORT DESIGN-BUILD DASNY.ORG RESIDENCE HALL

2 DASNY Gerrard P. Bushell President & CEO, DASNY

3 State Of The Industry Jeff Turner Executive Vice President

4 STATE OF THE INDUSTRY

5 AGENDA 1 Evolving 2 Student 3 Industry Context Housing Trends Alternative Delivery / P3

6 EVOLVING CONTEXT THE COST OF EDUCATION IS ON THE RISE. In the last decade, tuition, fees, room, and board rates have risen 27% at private institutions and 41% at public institutions. $40,000 Average Tuition, Fees and Room/Board in 2016 Dollars ( ) $33,480 $30,000 $26,380 $20,000 $10,000 $6,860 $2,680 $9,650 $3,520 $ Private Nonprofit 4-Year Public 4-Year Public 2-Year Source: Trends in College Pricing College Board, 2016.

7 EVOLVING CONTEXT THE MAJORITY OF STATES HAVE DECREASED THEIR FUNDING. On average, state funding per student has decreased 18% in the past eight years. 70% Changing in State Funding per Student (FY ) 50% 46% 30% 21% 10% 3% 2% -10% -30% -50% -70% -1% -3% -5% -6% -6% -8% -8% -8% -10% -11% -14% -15% -15% -15% -15% -16% -16% -17% -18% -20% -20% -20% -21% -21% -22% -22% -22% -22% -22% -22% -23% -23% -23% -24% -28% -29% -30% -30% -31% -32% -33% -36% -37% -39% North Dakota Wyoming Wisconsin Montana Alaska California Nebraska Indiana New York Maine Maryland Colorado Arkansas Connecticut Utah Minnesota South Dakota Hawaii Ohio Massachusetts Vermont Texas Tennessee Georgia Washington North Carolina Michigan Mississippi Rhode Island Oregon Iowa Oklahoma Kansas Missouri Virginia Florida New Jersey West Virginia Nevada Delaware New Mexico New Hampshire Idaho Kentucky Pennsylvania Alabama South Carolina Louisiana Illinois Arizona -54% -56% Sources: Mitchell, Leachman, and Masterson. Funding Down, Tuition Up. Center on Budget and Policy Priorities, August 15, 2016.

8 EVOLVING CONTEXT STUDENTS ARE COVERING THE GAP. Share of Funding for Higher Education at 4-Year Institutions by Source, FY 2000-FY % 60% 40% 20% 70% 30% 65% 35% Students are covering the gap left by reductions in state funding. Between 2000 and 2013, student tuition and fees went from covering 30% of the costs of education to 65% of the costs of education at 4- year institutions. 0% State Funding Tuition Source: Center on Budget and Policy Priorities.

9 EVOLVING CONTEXT DECLINING STATE SUPPORT IS DRIVING UP THE COST OF EDUCATION. Higher Instructional Costs 9% Drivers of Tuition Increases at Research Universities ( ) Higher Spending on Administration and Support 6% Higher Spending on Construction 6% Less State Support 79% Driving up the cost of education are reductions in state funding and increases in operating expenditures. At state research universities, reductions in state support account for approximately 79% of increases to tuition and fees. Sources: Hiltonsmith, Pulling Up the Higher-Ed Ladder: Myth and Reality in the Crisis of College Affordability. Demos, May 5, 2015

10 EVOLVING CONTEXT NUMBER OF HIGH SCHOOL GRADUATES The number of high school graduates in the Northeast is decreasing, impacting enrollment. Source: National Student Clearinghouse Spring National Center for Education Statistics

11 STUDENT HOUSING

12 Student Housing Costs COSTS AREN T DECREASING. Year Project Cost Per Square Foot Project Cost Per Bed Square Foot Per Bed 1997 $80 N/A N/A 1998 $85 N/A N/A 1999 $90 $31, $105 $24, $130 $35, $128 $40, $150 $45, $145 $45, $155 $53, $175 $55, $210 $63, $231 $73, $208 $69, $194 $69, $201 $78, $203 $68, $200 $68, $236 $79, $242 $85, Decreases in funding have not diminished the need for colleges and universities to make capital investments in aging facilities investments that have significant up front costs. Note: B&D Database for NY projects range between $90k- $150k per bed Source: College Planning & Management

13 Growth of SF Per Bed Growth in Square Feet per Bed

14 DEVELOPMENT CONTINUUM STUDENT HOUSING

15 Unit Type Configuration SUNY DASNY Residence Hall Program Beds by Type (Fall 2016) SUNY DASNY Residence Hall Program Beds by Type (Fall 2016) as percentages Source: SUNY / Annual Campus Utilization Survey

16 Building Age SUNY DASNY Residence Hall Ages (Fall 2016) Inclusive of new residence halls, SUNY housing has an average age of 39 years Source: SUNY

17 SUNY Percent Housed SUNY Fiscal Year Total Full Time Students ,990 39% ,615 39% ,812 39% ,990 39% ,908 38% ,499 40% ,764 42% ,851 42% ,822 42% ,860 42% ,178 42% ,020 41% ,013 41% ,031 42% ,978 42% ,736 42% ,048 41% ,586 42% % of Full Time Students Living on Campus Source: SUNY (only residence hall programs 25 campuses)

18 New York State Student Housing Inventory Control Sum of Total Enrollment (DRVEF2015) Sum of Total Dormitory Capacity (IC2015) % Private not-for-profit 468, ,869 35% Four or more years 467, ,823 34% At least 2 but less than 4 years 1,558 1,046 67% Public 442, ,709 23% Four or more years 356,688 93,480 26% At least 2 but less than 4 years 85,609 7,229 8% Private for-profit 19,366 3,611 19% Four or more years 13,619 2,937 22% At least 2 but less than 4 years 5, % Less than 2 years (below associate) % Grand Total 930, ,189 29% Source: IPEDS

19 Off-campus Housing Converted single family homes Purpose build student housing Driving distance Walking distance Fragmented market Fewer, well-capitalized players Large cap. rate spread from multi-family housing Cap. rate compression Twin River Commons

20 ALTERNATIVE DELIVERY / P3

21 ALTERNATIVE DELIVERY/P3 P3s ARE PROJECTED TO GROW.

22 ALTERNATIVE DELIVERY / P3 P3 IN HIGHER EDUCATION IS NOT CLEARLY DEFINED. Defining P3 NCPPP identifies 18 different legal and financial P3 structures based on who owns, finances, designs, builds, operates, and maintains the project Few centers of excellence No centralized governing body Shortage of technical and financial expertise The concept of alternative delivery / public-private partnerships in higher education though increasingly common is still ambiguous.

23 ALTERNATIVE DELIVERY / P3 P3S ARE DEFINED BY HOW RISK AND CONTROL ARE TRANSFERRED P3s are defined by how RISK and CONTROL are transferred through Design Construction Financing Operations Maintenance

24 P3 DISCUSSION RISK AND CONTROL TRANSFER University owned, operated, designed, financed University not-forprofit owned, ground lease Concessionaire Developer brings private equity via a ground lease Traditional University/ System Bond Financing Full Privatization of Asset / 100% Equity Deal University owned, operated, financed / turn-key design/build development Unrelated not-forprofit owned, ground lease Higher UNIVERSITY RISK Lower Higher UNIVERSITY CONTROL Lower

25 ALTERNATIVE DELIVERY A PROJECT IS DEFINED BY HOW RISK IS TRANSFERRED AND TO WHO. Alternative delivery projects are defined by how, and to whom, risk is transferred. Risk is often transferred to the party that is best able to control it. Source: World Economic Forum and The Boston Consulting Group, Strategic Infrastructure: Steps to Prepare and Accelerate Public-Private Partnerships, 2013.

26 ALTERNATIVE DELIVERY VARIOUS REASONS DRIVE A UNIVERSITY TO DO ALTERNATIVE DELIVERY...OR NOT REASONS FOR A UNIVERSITY TO DO ALTERNATIVE DELIVERY Limited debt capacity or an inability to finance Avoiding cumbersome procurement structures Faster delivery (Time = Money) Ability to consider a range of construction standards Development expertise Land assemblage Management and operating expertise Financial return (ground lease revenue, net cash flow participation) Risk transfer (initial costs, budget, financing and schedule) REASONS FOR A UNIVERSITY NOT TO DO ALTERNATIVE DELIVERY Cheaper Cost of Capital Better access to the capital markets Additional Project Costs Concerned about Control In House Development Expertise In House Management Expertise University Owns the Land Few University/State Construction Standards No Procurement Concerns Impact on Existing Housing Operation Off Balance Sheet, but still on credit

27 ALTERNATIVE DELIVERY STATES HAVE TAKEN NOTICE OF PRIVATE SECTOR INTERESTS. Before Today

28 Private Management Administrative/ operational Marketing Residence Life Shared Governance University Res Life Private Manager - Facilities Source: Student Housing Magazine

29 First Cost vs. Total Cost of Ownership Source: Balfour Beatty

30 ALTERNATIVE SOURCES & USES Developer equity Private Equity Local bank financing / private placement Tax-exempt and taxable debt USDA Financing Tax credit Opportunities Local funding opportunities

31 P3 DISCUSSION EXAMPLES OF P3S ARE WIDESPREAD. Rutgers University Honors Housing Not for Profit Developer 530 Bed Honors College $84 million Wayne State University Deal: 40-year concessionaire agreement Beds: 3,036 beds (1,695 in residence halls, 1,341 in apartments)

32 P3 DISCUSSION EXAMPLES OF P3S ARE WIDESPREAD. George Mason University Faculty Housing Deal: Ground Lease to Affiliated Foundation Beds: 151 multi-family apartments Louisiana State University Deal: Lease-Leaseback to Master Developer / CM at Risk Beds: 1,547 beds; 34,000 SF of retail, 10,000 SF of campus recreation space, 1,464 parking spaces

33 Alternative Methods for Financing & Delivering Student Housing June 1, 2017 WE HELP NEW YORK THRIVE SUNY BROCKPORT DESIGN-BUILD DASNY.ORG RESIDENCE HALL